The High Court has dismissed a claim brought by the liquidators of an investment company against a bank for knowing receipt, in circumstances where the investment company’s shares were transferred by a trustee (in breach of trust) to the bank, and used by the bank to discharge part of a debt owed by the trustee to the bank: Byers & Ors v Samba Financial Group [2021] EWHC 60 (Ch).

The court found that a claim in knowing receipt where dishonest assistance is not alleged, will fail if, at the moment of receipt, the beneficiary’s equitable proprietary interest is destroyed or overridden so that the recipient holds the property as beneficial owner of it.

The judgment is noteworthy for its analysis of the distinction between liability for dishonest assistance and knowing receipt, which historically has been blurred. The decision provides the following helpful clarification:

  1. Dishonest assistance is truly fault-based. It arises from the dishonesty of the defendant in assisting a trustee to commit a breach of trust (or assisting a fiduciary to commit a breach of fiduciary duty). It is important to note that such liability, if established, may result in vicarious liability for the employer of the individual defendant.
  2. Knowing receipt unconnected with dishonesty is different, at least at the moment of receipt. The recipient is not liable in such a claim for wrongly agreeing to receive the property. The knowing recipient’s liability depends on their knowledge that the property they receive is trust property and is to be dealt in that way. The principal duty of a knowing recipient is to deal with the property once received as if they are a trustee of it and to restore it to the trust.

For more information see this post on our Banking Litigation Notes blog.